California cap-and-trade ruling to be appealed

Tim Hearden/Capital Press
A sign at a Redding, Calif., workshop this summer explains the Pacific Legal Foundation's mission as attorney Tony Francois discusses the organization's lawsuit challenging California's cap-and-trade system during a workshop July 23 in Redding, Calif. The PLF plans to appeal a judge's ruling upholding the regulation.

The Pacific Legal Foundation announced it plans to appeal a judge's ruling upholding California's cap-and-trade auction system. The group maintains the program amounts to an unconstitutional tax and that it exceeds the scope of legislation.

SACRAMENTO — Lawyers for businesses that sued the state of California over its cap-and-trade auction system say they will appeal a judge’s ruling that upheld it.

The Pacific Legal Foundation challenged the system on behalf of farms and other businesses, arguing it amounts to a tax that wasn’t passed by a required two-thirds majority of the Legislature and that it exceeds the scope of climate-change legislation approved in 2006.

Sacramento County Superior Court Judge Timothy Frawley disagreed, ruling that the trading of credits to emit greenhouse gases amounts to a fee meant to regulate activities and not to raise revenue.

“To begin, those who purchase allowances receive a ‘tradable’ right to emit GHGs (greenhouse gases), which has economic value and can be traded,” Frawley wrote in his decision. “If the atmosphere’s capacity to assimilate GHGs is viewed as a limited public resource, selling emissions allowances can be analogized to selling a right to use a public resource, similar to a hunting/fishing license, a mineral extraction permit, or a wireless electromagnetic spectrum license.”

However, PLF senior attorney Ted Hadzi-Antich maintains the California Air Resources Board devised the auction regulation without proper authorization by the Legislature. He accuses the agency of carrying out “its own will.”

“We were hoping for a different result, certainly,” Hadzi-Antich told the Capital Press. “I think it was incorrectly decided. Fortunately it’s all legal questions and no factual questions that are at issue, so the Court of Appeals is going to decide it de novo, or right from scratch.

“We’ll go into the Court of Appeals with a clean slate, and we look forward to having our day in court there,” he said.

The cap-and-trade program is a key element of California’s climate plan, setting a statewide limit on sources responsible for 85 percent of the state’s greenhouse gas emissions and establishing marketable credits aimed at encouraging long-term investment in cleaner fuels and more efficient use of energy, according to the air board’s website.

As part of the program, the ARB holds allowance auctions and reserve sales to enable participants to purchase credits from businesses that didn’t exceed their cap. The first reserve sale was held in March.

A nationwide cap-and-trade proposal sputtered in Congress in 2010 after critics found it would have cost agriculture hundreds of millions of dollars a year in increased fuel costs and billions of dollars in farm gate revenue. However, President Barack Obama has said he plans to make it a priority for his second term.

The PLF has asserted that California’s system is already placing a financial burden on family-owned businesses that own fleets of trucks as well as large dairies. One business it’s representing in the lawsuit is the Morning Star Co., a Woodland, Calif., tomato processor that had to spend more than $200,000 in auctions this year for emissions credits.

Air board spokesman Dave Clegern said in July that most of the emissions allowances the state issues are free of charge, and those who participate in auctions receive something that can be resold or traded for value. He said businesses can avoid paying high prices for credits by reducing emissions.